The recovery of the Luxembourg real estate market

Spirits fell in June, just as schools were breaking up for the summer, with the publication of the Grand Duchy's real-estate market statistics. A comparison of the figures for the first quarter of 2023 against the corresponding period in 2022 showed a collapse in the number of transactions and a historic fall in prices after more than a decade of continuous growth. It was, of course, the savage increase in interest rates that was a particular cause of this market reaction. Now, with the summer break behind us, there are good reasons to think that the second part of the year will bring more smiles. Some rates are already on the decline: a good omen!

Luxembourg remains at or near the top of the class in the European economy. This means that while the European Commission's Directorate-General for Economic and Financial Affairs has revised its GDP growth forecasts upwards (1% in 2023 and 1.7% in 2024), its forecasts for Luxembourg are higher still, at 1.6% for 2023 and 2.4% for 2024. A structural view gives grounds for optimism, despite the war in Ukraine and rising energy prices. This is enough to reassure investors and continue to boost markets, including the real-estate market.

As long as the fundamentals remain sound, there is no reason for interest rates to continue to climb. And that observation is as valid for property loans as for anything else. Rising rates benefit neither potential buyers nor the banks, which run the risk of seeing investors tempted by other economic sectors (such as industries linked to the energy transition) or other geographical regions.

And what was expected was confirmed on 18 August, when Luxembourg's Central Bank revealed that the average fixed-rate property loan rate fell in June for the third month in succession. The average rate has been estimated at 3.79%, putting distance between itself and April's peak of 3.93%. As we know, differences of tenths of a percentage point can lead to upward or downward monthly payment changes measured in the hundreds or thousands of euros! On the other hand, for individuals who opted for variable rate loans, the rate was 4.42% in June compared to 4.38% the previous month.

There is another reason for optimism: neighbouring regions are continuing to resist the tendency to flag. "Belgian notaries found that sales fell in the three regions of the country (Flanders, Brussels and Wallonia) in the first half of the year, but they increased from the first to the second quarter," recently reported the Virgule website. Prices are also on the rise in the Belgian province known as Belgian Luxembourg (+43.8% for houses and +30.5% for apartments), according to the same source.

In Lorraine, France, prices are being held and the decline in transactions is half that of the Grand Duchy.

This means that there are mechanistic reasons for Luxembourg's vendors to be keen to keep in sync with the competition from over the border. And this will benefit potential purchasers.

There is one last argument is in favour of recovery. Luxembourg Minister Henri Cox told RTL that the public authorities intend to continue their policy of support for (affordable) social housing. This is leading the State to take over private projects halted by the crisis and a 110-million-euro envelope has been released for this purpose. This should lead to a domino effect benefiting potential buyers, including those looking to acquire a "non-affordable" home. The State wants to lead by example...

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